An FHA reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), is a loan insured by the United States Federal Government.
After the Great Depression, the United States Congress passed the National Housing Act of 1934 with the purpose of making homes and mortgages more affordable. This act created a government agency called the Federal Housing Administration, also known as the FHA. This organization began insuring forward mortgage loans made by approved lenders.
The FHA also began with a few other purposes and goals in mind:
– To regulate the interest rate and mortgage terms it insures and thus increase the number of people who can afford to buy a home
– To improve the national standards of housing
– To set standards for home construction
– To establish a strong financing system to encourage home ownership
– To stabilize the housing market
In 1988, the FHA extended its insurance coverage to include reverse mortgage loans, establishing their HECM program.
FHA HECMs are non-recourse loans, meaning the property is the only collateral that can be taken to pay back the loan. There is no personal liability on the borrower’s part. This protects the borrower from owing on a loan that costs more than the house is worth when sold. FHA insurance also protects the lender by paying the lender if a homeowner defaults on their loan.
Other reverse mortgage products exist but may be restricted for specific purposes and are not federally insured. The funds from an FHA reverse mortgage, however, may be used for almost anything and are federally insured.
“The Federal Housing Administration (FHA).” HUD.gov. US Department of Housing and Urban Development, Web. 14 July 2014. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory
“Federal Housing Administration.” Wikipedia.org. Wikipedia, The Free Encyclopedia. 8 Jun. 2014. Web. 14 Jul. 2014. http://en.wikipedia.org/wiki/Federal_Housing_Administration
“Are There Different Types of Reverse Mortgages?” Consumerfinance.gov. Consumer Financial Protection Bureau, 6 Nov. 2014. Web. 14 July 2014. http://www.consumerfinance.gov/askcfpb/226/are-there-different-types-of-reverse-mortgages.html